Legal issues when starting your Forex brokerage

When you begin to open a Forex brokerage, you will be faced with a series of choices regarding how to set up your business. Each decision you make affects both the initial amount of capital needed to begin operations, as well as the type of clients that you will attract. The most important questions to answer are where to set up your brokerage, and whether or not you wish for your brokerage to be regulated.

WHERE TO SET UP YOUR FOREX BROKERAGE?

There are several good jurisdictions to choose from when deciding where your FX business will be based. Brokers typically opt for either more established countries which inspires a high level of trust, such as the U.K. or Australia, or choose an offshore option such as Cyprus or British Anguilla, which usually have lower initial capital requirements.

While creating a business presence in a more well-known locale can increase your client base, certain countries have additional requirements regarding Net Capital (Net Cap) minimums and regulation that can make opening a brokerage more complicated.

SHOULD YOUR FOREX BROKERAGE BE REGULATED?

Regulation helps you gain traders for your brokerage by substantiating your credibility. Regulated companies must meet strict guidelines in terms of having enough funds set aside to separate client deposits from the brokerage’s operating budget. Additionally, regulated brokers need to undergo thorough audits and have procedures in place to address client concerns. With the introduction of all of these safeguards, traders are more comfortable doing business with a regulated company.

Much like jurisdiction, Forex regulation plays a large role in attracting traders by building trust. However complying with regulatory procedures will add extra upfront and rolling costs, both in terms of capital requirements as well as personnel needed to confirm compliance.

You might decide to start your Forex business in a region with lower total costs, including incorporation fees, regulatory charges, Net Cap requirements, and staffing. You can then focus on growing your business, and once your brokerage has gained an active client base, you can switch to a prestige jurisdiction or become regulated once you have begun to realize profits.

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